With MNREGS funds over in 21 states, govt should replenish them immediately

Diwali is over and budget time is here. Even at the best of times, it’s a semi-political exercise. But this time it’s likely to be an entirely political one because between 2022 and 2024, there are 16 assembly elections.

Four of the five of these—Gujarat, Uttar Pradesh, Uttarakhand, Haryana, Jharkhand—are in the Hindi belt that forms the backbone of the BJP. All of them have either exhausted or have nearly exhausted their central support funding for MGNREGS, which has emerged as a lifeline for the rural poor during the Coronavirus (Covid-19) pandemic. 

These States need more money, as do the other 11 states which need to elect new governments. But it’s the Hindi states that matter more. So it’s highly likely that the forthcoming Budget will give them large lollipops to suck on.

That said, there’s something else the government will have to address, more than just pumping in money, that is. According to the MGNREGA website, 21 States and two Union Territories have already run through their entire year’s central funding for the employment guarantee scheme. 

In fact, the financial statement for the scheme shows a negative balance of about Rs 8,800 crore, and nearly Rs 10,000 crore in pending wages. 

This means there is high demand for MGNREGA work, and not enough money to pay those who do the work. This one statistic highlights several problems with the rural economy, both ongoing and imminent. 

The ongoing problem is that demand for MGNREGA work is still high despite this financial year having been much better in terms of fewer Covid restrictions and higher demand. Why, if industry is getting back on track, as the government claims it is, are so many people still looking at MGNREGA for work?

Does this point to a flaw in the system, as some government officials have claimed, where state governments are using it to create artificial demand? Or does it point to a more serious problem where industry is getting back on track, but has found that it can do so with fewer workers? 

Both factors are at play, which is something the government might want to look into. 

The imminent problem, of course, is that delayed wages for the rural population means depressed rural demand in the near future, something the nascent economic recovery cannot afford to let happen, especially during the festive season when people usually loosen their purse strings. 

A strong monsoon last year and this year meant that the agriculture sector assisted rural demand to recover quickly, but that’s not something the government can afford to bank on because income from selling produce is one thing and income from selling your own labour another thing altogether. More than half of India’s rural population now comprises landless labourers. 

The first step, of course, would be to enhance the allocation for MGNREGA in the Revised Estimates. Last year, during the pandemic, the Government budgeted Rs 61,500 crore for MGNREGA, which it enhanced to the highest-ever level of Rs 1.11 trillion in the Revised Estimates. 

This year, betting on an economic recovery that would absorb the excess labour, the government budgeted Rs 73,000 crore for the scheme.

But while recovery seems to be happening, labour absorption is not. Simply diverting that excess labour to MGNREGA is a short-term fix. Nor is labour absorption going to improve anytime soon. Superior production technology can’t be stopped. 

So India has to prepare itself for endless and increasing drain on government finances. China may hide the fact better but both countries will be dole economies for a long, long time to come. 

In the meantime with so many elections coming up, the Budget might be too far away to do anything worthwhile to fix this issue. The government will have to do it during the Winter Session of the Parliament itself.